Greenwich IATA Presentation 7 Oct 2008 Final Website
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Greenwich IATA Presentation 7 Oct 2008 Final Website Greenwich IATA Presentation 7 Oct 2008 Final Website Presentation Transcript

  • May You Live in Interesting Times 2008 7 October, 2008
  • AGENDA Living in Interesting Times • Liquidity Crunch and the Corporate Treasurer • Liquidity Crunch and the Investor • Current Operational Topics • Thinking Forward • Appendix: Greenwich Associates Confidential 2
  • May you live in interesting times: a curse come true? • Commodity prices up, or down again? • Inflation spiking, or moderating again? • EOS, Silverjet, Zoom, XL • Alitalia, BA/Iberia, LH/SAS • Bear Stearns, Northern Rock, Lehman, ML • ? Confidential 3
  • Responsible for Current Market Turmoil in the United States 63% 65% Investment Banks (555) 67% 59% 60% 42% Mortgage Underwriters (533) 47% 73% 60% 61% Rating Agencies (533) 60% 60% 53% 43% Government Institutions and Regulators* (471) 49% 57% 39% Overall 40% The U.S. Federal Reserve/Central Bank (341) 41% 37% Asia Pacific 34% Consumers (303) 20% 22% Europe 45% 30% North America 23% Accounting Regulations (266) 32% 30% 26% 22% Hedge Funds (226) 26% 26% 23% 24% Sellers of Credit Default Industry (203) 18% 26% 11% 7% The Housing Construction Industry (100) 7% 15% Nobody is Responsible (5) 4% 12% Other (103) 8% 9% 14% * U.S. Congress, U.S. Securities and Exchange Commission and U.S. Treasury Department Note: Based off responses from 900 respondents globally Confidential 4
  • Responsible for Current Market Turmoil in the United States Other Mentions: • “All of the parties that bought poorly written securities or changed their underwriting/risk taking standards.” – Asset Manager, North America • “Bush's economic policies.” – Asset Manager, North America • “Government policy encouraging lending to low income people and lax lending standards overall.” – Asset Manager, North America • “Greed of homebuilders, banks and consumers.” – Asset Manager, Europe • “Lack of understanding of underlying risk.” – Asset Manager, Europe • “Loose credit policy across the board; free money thanks to Alan and cheap lending by banks based more on asset valuation then credit scoring. Also, consumer desire for goods that led them to borrow to spend so lets blame advertising at the same time.” – Asset Manager, Europe • “Many are responsible. We have had low interest rates and low spread for too long. We ended up with all the same positions which were too leveraged.” – Corporate, Europe • “Mr. Greenspan, due to his period of easy money and low interest rates.” – Corporate, Europe • “Real estate speculators.” - Asset Manager, North America • “The cheap money over the last 15years and clearly a misunderstanding in modeling risk this was compounded by rates being keep extremely low and a housing market worldwide that contributed too large a percentage to everyone's GDP.” – Asset Manager, North America • “Wrong Compensation Incentives of IB [Investment Banks].” – Asset Manager, Europe Confidential 5
  • Entity that Inspires Most Confidence in Addressing Current Market Turmoil 32% The U.S. Federal 30% Global Reserve/ Central 33% Bank Asia Pacific 32% Europe 31% U.S. Government North America 32% institutions and 35% regulators 28% 19% 18% The quot;free marketquot; 13% 23% 18% 20% None of the above 19% 17% Note: Based off responses from 882 respondents globally Confidential 6
  • Level of confidence in the U.S. Federal Reserve’s $700 Billion Bailout Plan Uncertain Asia Pacific 64% 16% Europe 58% Very/ Somewhat confident 61% Latin America 92% Not at all confident 24% North America 61% 0% 25% 50% 75% 100% Note: Based off responses from 901 respondents globally Confidential 7
  • Short Selling of Financial Services Firms Do you think short selling of financial services firms should be allowed? Asset Managers Corporates Pensions Uncertain Uncertain Uncertain 14% 14% 14% Yes No 47% 20% No Yes 55% 32% Yes No 65% 39% Note: Based off responses from 868 respondents globally Confidential 8
  • A clear majority of companies expect their economies to deteriorate over the next six months, with a positive turn not until 12-18 months out. Expected Length of Time Before Positive Economic Turn U.S. Companies – September 2008 February 08 16% September 08 Deteriorate 6 Months Significantly/ 4% Deteriorate 71% 49% 12 Months 50% Improve Significantly/ 28% Improve 18 Months 11% 32% 7% No Change 2 Years 11% 18% 0% Longer than 2 years 4% Note: Based on interviews with 100 U.S. companies in February, and 291 U.S. companies in September of 2008. Confidential 9
  • Expected Length of Time Before Positive Economic Turn 52% 24% 1 - 2 years Global (889) 22% 12 Months or less 2% More than 2 years 47% Uncertain 23% Asia Pacific (84) 25% 0% 52% 22% Europe (310) 24% 0% 69% 5% Latin America (13) 15% 0% 53% 27% North America (492) 20% 1% Note: Based off responses from 889 respondents globally Confidential 10
  • Amount of Time Before Equity Markets Hit Bottom 23% 1 - 2 years 67% Global (887) 12 Months or less 6% 3% More than 2 years 21% Uncertain 70% Asia Pacific (84) 9% 1% 22% 70% Europe (310) 5% 4% 15% 77% Latin America (13) 0% 8% 24% 66% North America (490) 6% 3% Note: Based off responses from 897 respondents globally Confidential 11
  • Corporate Bond Spreads only match those of 2002/2003 while FI spreads exceed them, highlighting how difficulties in the Financial System will extend the current difficult environment Confidential 12
  • The strongest increase in demand for financial products is for hedging products and funding products. Expected Change in Need for Funding (% of Companies) Decrease/Decrease Significantly Increase/Increase Significantly Companies’ expected change in 22 need for funding Hedging Products -6 shows only relatively modest 24 shifts, with expected Funding for Ongoing Operations -9 increases and decreases nearly 15 netting to zero. Structured Finance Need for funding for -12 ongoing operations 13 is up, while need for Funding for Capital Expenditures -16 funding capital expenditures or 14 acquisition finance Acquisition Finance -15 is flat to down slightly. -50 -25 0 25 50 Note: Based on interviews with 291 companies in the United States in September 2008. Confidential 13
  • The Short View: Credit squeeze outlook Lending officers  said they were continuing to tighten standards, whether on credit cards, prime mortgages, consumer or business loans, even though a strong majority of banks had done this in the second quarter. That implies a squeeze on consumption, and lower investment, as the year goes on. Polling lenders in the eurozone, seemed a little less gloomy, but only on the surface. There were slight decreases in the proportion of banks planning to tighten standards for corporate loans. Furthermore, lending officers said demand for company loans was decreasing and economic risks were putting pressure on them to tighten. In Europe and the US, the cost of insuring against default for investment-grade companies has risen but stayed well below recent highs, while the default risk for high- yield or lower-quality credits has shot up, almost regaining its highs. Spreads payable on speculative-grade credits are at their highest in four months. Financial Times PUBLISHED: AUGUST 14 2008 Confidential 14
  • Tightening of Credit Standards is expected to continue in the USA and Europe 60 50 40 30 Europe USA 20 10 0 1st Qtr 2nd Qtr 3rd Qtr Note: Third quarter values are expected Source: ECB and FRB Quarterly Lending Conditions surveys Confidential 15
  • Both in Europe and the US banks expect loan demand to weaken, but in the US more than before and in Europe less than before 20 15 10 5 0 Europe USA -5 -10 -15 -20 1st Qtr 2nd Qtr 3rd Qtr Note: Third quarter values are expected Source: ECB and FRB Quarterly Lending Conditions surveys Confidential 16
  • AGENDA Living in Interesting Times • Liquidity Crunch and the Corporate Treasurer • Liquidity Crunch and the Investor • Current Operational Topics • Thinking Forward • Appendix: Greenwich Associates Confidential 17
  • 70% of Investors Expect a Recession in the United States February 2008 Total Institutions Asia (ex Japan) Europe 71% Limited borrowing 66% North America capacity for corporates 76% 67% 70% 74% Recession in the United States 69% 69% 58% Global economic 58% downturn 51% 66% 2% None of the above 0% 0% 5% Note: Based on responses from 234 global institutions. Confidential 18
  • Performance of CDOs and Structured Credit Products has Made more than One Half of Investors Reluctant to Invest in them February 2008 Has the performance of CDOs/ structured products made you less likely to invest in these products in the future? Uncertain, Uncertain, 22% 21% Uncertain, 31% Yes, 58% Yes, 50% Yes, 56% No, 19% No, 29% No, 13% Asia (ex Japan) Europe North America Note: Based on responses from 221 global institutions. Confidential 19
  • But a Meaningful Minority Plan to Invest in Illiquid Instruments February 2008 Did you or do you plan to Which illiquid instruments did you or do invest in illiquid instruments you plan to invest in? due to the turmoil in the credit Mortgage-backed securities 50% markets? High-yield credit bonds 48% Asset-backed securities 46% Commercial mortgage-backed 41% securities Emerging markets bonds 33% Distressed debt 28% No, 63% Yes, 37% Leveraged loans 26% Collateralized debt obligations 24% Covered bonds 24% High-yield CDS 24% Agency securities 22% Note: Based on responses from 128 global institutions. 17% Asset-backed commercial paper Confidential 20
  • Systemic and Counterparty Risk Have Become Bigger Concerns February 2008 Systemic/market risk Proportion of Investors Citing Each Factor as a Top Risk Credit/default risk 65% Liquidity 60% Counterparty risk United States (Q1 2007) 47% 15% 64% 56% Europe (Q2 2007) 38% 14% 56% 60% Global (Q3 2007) 83% 27% 76% Global (Q1 2008) 54% 60% 33% Note: Asked of 1,007 U.S. investors from 2/12 – 4/12/07; asked of 1,106 European investors from 5/21 – 7/27/07; asked globally of 251 fixed-income and equity derivative investors from 8/30 – 9/7/07 and 214 from 1/22-2/6/08. Confidential 21
  • AGENDA Living in Interesting Times • Liquidity Crunch and the Corporate Treasurer • Liquidity Crunch and the Investor • Current Operational Topics • Thinking Forward • Appendix: Greenwich Associates Confidential 22
  • Return expectations for cash investment have declined in the United States following declining interest rates and more conservative portfolio allocations. Target Annual Return on Cash Investments February 2008 3.7% United States May 2007 4.9% February 2008 5.5% Europe October 2007 3.8% February 2008 6.7% Asia October 2007 7.1% Note: Based on responses from 95 companies in the United States, 99 in Europe, and 66 in Asia from February 2008 and 678 in the United States from April through June 2007, 100 in Europe and 174 in Asia from August through November 2007. Confidential 23
  • U.S. companies are shifting more cash investment into higher- rated securities. February 2008 Cash Portfolio Allocation US companies May 2007 78% AAA/Aaa 71% 16% AA/Aa 17% 5% A/A 8% 0% BBB/Baa 1% 0% BB/BA or below 0% 0% No Ratings/Other 4% Note: Based on responses from 65 companies the United States from February 2008 and 617 from April through June 2007. Confidential 24
  • European companies have shifted cash investments toward lower- rated/higher-yielding securities. February 2008 Cash Portfolio Allocation European companies October 2007 22% AAA/Aaa 32% 47% AA/Aa 28% 22% A/A 15% 4% BBB/Baa 3% 0% BB/BA or below 0% 4% No Ratings/Other 21% Note: Based on responses from 53 companies in Europe from February 2008 and 110 from August through November 2006. Confidential 25
  • Similar to U.S. companies, Asian firms have moved toward higher- rated securities for cash investments. February 2008 Cash Portfolio Allocation Asian companies October 2007 49% AAA/Aaa 45% 31% AA/Aa 17% 16% A/A 8% 5% BBB/Baa 3% 3% BB/BA or below 1% 6% No Ratings/Other 26% Note: Based on responses from 36 companies in Asia from February 2008 and 247 from August through November 2006. Confidential 26
  • Average number of banks used for Cash Management Services by airlines declines unlike in the wider market Banks used To p Tier Euro pe 5.8 Euro pean A irlines 5.2 5.2 5.4 5 5.1 A sia 4.8 4.8 4.7 4.3 4.7 4.4 A sian A irlines 4.2 4 3.9 U.S. 3.9 3.7 3.8 3.4 U.S. A irlines 3.3 2004 2005 2006 2007 Confidential 27
  • Distribution of PCM wallet to the lead PCM bank virtually unchanged Airlines Share of Wallet to the Lead PCM Bank Overall 63% Total Asia 63% 55% Top Tier Europe 61% 56% United States 59% Confidential 28
  • SEPA and electronic payments are catalysts for consolidation but not main drivers Anticipate consolidating cash management service needs among fewer providers? Reasons Greater use of electronic 28% payments & receipts Pressure from large credit 6% Yes, 30% provider No, 70% The effects of SEPA being 32% introduced Other 58% Confidential 29
  • Companies still do not anticipate meaningful changes from SEPA and half have not made detailed plans to take advantage of its benefits When will you have necessary payment data for 2007 Expected Impact of SEPA: clients in order to take advantage of SEPA? 2006 Reduction of the number of accounts 27% used in different European countries for 38% 31% the purpose of payments and collections Already mostly in place 36% Reduction of the number of 7% finance/treasury centers within Europe 11% Reduction of the number of cash 12% 15% management providers used 18% In place by the end of 2007 19% Reduction in the amount of working 11% capital required for your European 10% operations 12% More accurate cash flow forecasting 47% 14% No detailed plans yet 44% 61% No significant change 60% Confidential 30
  • Fraud prevention is becoming more important in Europe in selecting cash management providers 2007 Fraud Prevention Extremely Important in Selecting Providers* 2006 84% Total Asia 97% 75% Top Tier Europe 69% 91% United States 90% * Based on ratings of “4” or “5” on the 5-point scale. Confidential 31
  • Key Sources of Fraud Monitored and Controlled: Internal sources of fraud are becoming a greater concern 2007 2006 Total Asia Top Tier Europe Check Processing (for receivables or 58% 40% payables) 63% 56% Internet-based or other electronic forms of 42% 50% payments (receivables or payables) 43% 57% Illicit use of company funds for payments to 42% 46% third parties by your employees 50% 39% Misappropriation of funds by employees or 45% 42% your company 43% 30% Protection of financial data of customers or 37% 39% suppliers (e.g. customer credit card details stored in your databases) 37% 30% 7% 16% Other 4% 11% Confidential 32
  • A meaningful minority of companies expects to move to direct access to SWIFT shortly Plans to move company to direct When do you expect company to access to SWIFT begin using SWIFT? 0-3 months 44% 4-6 months No, 72% Yes, 28% 7-12 months 10% 1-2 years 18% 2-3 years 16% 3+ years 8% 4% * Includes liquidity management, supply chain management, trade finance, cash management, and foreign exchange. Confidential 33
  • AGENDA Living in Interesting Times • Liquidity Crunch and the Corporate Treasurer • Liquidity Crunch and the Investor • Current Operational Topics • Thinking Forward • Appendix: Greenwich Associates Confidential 34
  • Changes in availability and cost of external funding will trigger fundamental changes in companies’ funding strategies • Funding cost has soared and access is getting harder • Companies will need to change the way in which they manage their bank relationships • More consistent access to capital markets requires a different approach to debt capital markets providers and investors • New tools and payments options coming on-stream • Increasing concerns about fraud in operations • What you should think about next…… Confidential 35
  • Thinking Forward: Are You Prepared? Funding Costs and Risks How to demonstrate credit quality Marketing the company to Investors More limited funding options (sources and structures of capital) Nervous intermediaries Has the ability of our business to generate funds internally deteriorated relative to the competition. Do we have better or worse access to funding than competitors? Which banks demonstrate a consistent and ongoing commitment to corporate clients despite the credit crisis? How do I need to adapt my communication with bond holders to improve access to public markets? Risks to the asset side of my balance sheet from bank counterparty risk? Operational Challenges Surprisingly modest preparedness for SEPA How can your banks help in fraud prevention? Confidential 36
  • AGENDA Living in Interesting Times • Liquidity Crunch and the Corporate Treasurer • Liquidity Crunch and the Investor • Current Operational Topics • Thinking Forward • Appendix: Greenwich Associates Confidential 37
  • The Greenwich Associates Mission Provide decision-makers in institutional financial markets with market intelligence and expert advice - based on proprietary, comprehensive market research and in-depth analysis Provide consistent quantitative and qualitative metrics to improve customer/provider relationship management and promote greater efficiency in the markets Corporate Banking, Investment Banking, Cash Management, Foreign Exchange, Derivatives, Fixed Income, Brokerage, Asset Management Offices in Stamford (USA), Tokyo, Singapore, London and Toronto Standardized ongoing programs as well as tailored studies Confidential 38
  • Our Business Model Greenwich Associates’ principal focus is monitoring and analyzing the relationship dynamics between buyers and sellers of financial services. Buy-Side Services Sell-Side Services • Peer-Based Compensation • Consulting Services Corporate Commercial • Greenwich Rankings Finance Banking • Competitive Positioning • Market Trends Analysis • Customer Behavior • Peer Benchmarks/Best Treasury Greenwich Investment • Customer Satisfaction Practices Services Associates Management • Best Practices • “Hot Topic” Research • Market Trends Analysis • Customized Research Brokerage Fixed Income • Account-level Reporting • Consulting Services • Custom Research • Over 30 years of experience • 40,000 Research Partner relationships in over 70 countries • Provide consulting advisory solutions to over 250 clients globally • Over 100 research programs underwritten by Greenwich annually Confidential 39
  • Value Exchange Greenwich produces high quality, relevant, and actionable financial industry intelligence. Market-driven feedback results in confident business decision-making based on objective information. • Greenwich Report • Online access to extensive Value research library Delivered • Customized research • Direct feedback to service providers • Relevant questions • Experienced Executive Interviewers Professional Interviews • Flexible interviewing methods • In-person • Telephone • Internet • Institutional and individual focus • Continuous market feedback sets research agenda Relationship • Research Partner support: Management • Executive Interviewer • Customer Service • Community Manager • Lead Consultant Confidential 40